Without personnel, no enterprise can exist. Every employer understands this. Therefore, sooner or later, the question arises of a compensation package for employees, because the results of the company’s activities depend on their loyalty and diligence.
General concepts
The reward system involves the division into external and internal incentives. External remuneration is fully controlled by the administration of the enterprise. They are designed to increase labor efficiency. The group includes a compensation package for employees, which affects the socio-psychological atmosphere.
Internal incentives directly depend on the personality of the employee, his psychological state. The company can only provide comfortable conditions for the employee to feel satisfaction from his activities in the company.
External incentives
In the field of personnel management, there are many theories and developments. In general, the compensation package for employees of the organization should perform the following functions:
- Attract new employees. In the conditions of fierce competition in the market, it is quite difficult to attract an employee of the necessary qualifications and experience, therefore it is the additional remuneration that should distinguish the company among others.
- Retention of existing staff. It is no secret that some companies offer low salaries. You can compensate for this shortcoming due to any benefits, bonuses and so on.
- Focus on achieving the goals in which the company is interested.
- Control over staff costs.
In addition, the reward system should be simple and transparent. How it works should be understood by every employee. However, it is important to understand that the cost of administering the system should be minimal.
Compensation package should satisfy not only basic needs, but also stimulate the employee to improve the quality of work and their own professionalism. Below we look at what is included in this package.
Contents and structure of the compensation package
To date, there are three elements of the reward system:
- Basic pay.
- Extra reward.
- Social payments.
The first element of the system is guaranteed at the level of legislation. The base fee consists of salary, allowances and surcharges. Salary usually does not change for a long time, and its size depends on the position, rank, education, experience and other factors and is actually payment for the time worked.
Premiums are formed and introduced based on the individual and professional characteristics of a particular employee. For example, they can rely on knowledge of a foreign language or on length of service. Most often they are calculated as a percentage of salary.
Incentive payments
This is the second element of the compensation package. The size and frequency of such payments is made dependent on the results of the employee. They can be made in the form of bonuses, bonuses and so on.
Bonuses are usually paid for certain merits or achievements and are variable components of wages, that is, they are not paid on an ongoing basis. They may be considered intermediate high scores. The amount of such remuneration varies from 10% to 70%. And the amount of premiums for the final result of the company’s activity can reach 300% of the salary.
Additional rewards may be piece-rate. For example, when a plan for manufacturing parts is overfulfilled, a worker can receive a certain percentage for each unit manufactured in excess of the norm. But most often, such percentages are found among sales staff.
Ways to motivate sales staff:
- A fixed rate for a sold unit or batch of goods.
- The percentage of sales that is paid exclusively after the receipt of money in the account of the company.
- Payment of a certain percentage after the implementation of the plan and so on.
No one restricts the employer in adjusting the variable part of wages and deciding the question of what dependence he puts it on. The ratio of fixed and variable parts of wages is also given to the employer. Of course, the constant part of wages (salary) cannot be less than the minimum wage established, and the variable can be from 10% to infinity.
Benefits
The compensation package of the organization may have in its structure social benefits or benefits. As a rule, such remuneration does not depend on the quality of labor and its results. Such a package may include:
- Compensation of transportation costs.
- Health insurance.
- Share in the profit of the enterprise.
- Free dinners.
- Travel packages.
- Valuable gifts.
- Compensation of depreciation expenses for the use of personal vehicles and so on.
It is these types of remuneration that are produced in intangible form and are indirect. However, they increase the overall well-being of each employee.
Some social benefits are set at the legislative level. For example, payment of basic and additional leave, benefits for women with children and pregnant women, and others.
Reward System Groups
Conventionally, the elements of the compensation package are divided into three groups:
- Mandatory. Payments guaranteed at the level of legislation.
- Recommended. Payments of this type are not obligatory, but when they are introduced at the enterprise, the employer has the right to rely on certain tax benefits.
- Additional. Encouragements that the employer can introduce at his own risk and peril, but he does not receive any tax relief from the state.
According to this classification, in particular, the compensation package includes social rewards that are classified in the recommended and additional categories. In the psychological shift, they are the most significant for the staff.
Preparing to develop a reward system
The development of an employee compensation package is a process that must go along with the strategic development of the enterprise, with certification and evaluation of personnel, and the state of the labor market.
Practitioners in the field of development and recruitment recommend answering a number of questions, and then proceed with the development of a remuneration system. Firstly, it is necessary to rely on the cyclical planning adopted at the enterprise, that is, the plan is drawn up for 1 year, 2 or 5.
Secondly, it is necessary to differentiate personnel into core, managerial, service and so on. This will make it possible to divide the system into several groups.
Thirdly, which department will be involved in the compilation of the system and its implementation. This can be either a personnel department or a structural unit that deals with remuneration.
Fourth, determining the position of the enterprise in the labor market. It takes into account what kind of personnel is required, how much it is in demand on the labor market, what payments are offered in other organizations, what does the company offer, which introduces a remuneration system. It is considered higher or lower wages are offered in comparison with other employers. Do not forget about the trial period. It is necessary to consider what payments are offered, how this process will happen in the future.
Fifth, it is necessary to determine the proportions between the constant and variable parts of remuneration. Based on this, it is necessary to establish a compensation social package. It is also necessary to consider what real opportunities the employer has to provide these benefits.
Sixthly, it is necessary to link the assessment and payment system, make the qualification training system and pay increase dependent.
It is very important to know if salary information is open in the enterprise. Often, the closed remuneration system does not produce the expected results. If an employee does not understand how bonuses and bonuses are awarded, he does not seek to work better. The same rule applies to cases where the leader behaves subjectively in the distribution of bonuses, that is, is based on personal preferences.
Ranking posts
After determining the organizational structure, it will be necessary to identify the categories of personnel for which it will be necessary to create different compensation packages. As a rule, three groups are distinguished:
- The main staff.
- Auxiliary.
- Attendant.
The first category is one of the most important, because such workers are involved in the manufacturing process or in its marketing. It is these people who bring the main income.
The second category is employees who are indirectly involved in the creation of the final product.
The third category is workers who provide for needs, that is, indirectly participate in the process. This is the administration, personnel and advertising department, accounting and so on.
For all these categories, the reward system should be different. For example, you cannot put an accountant in dependence on the number of products sold.
Conclusion
Each organization has the right to independently determine for itself what kind of personnel remuneration system it will have. Therefore, universal advice on the compilation and implementation of the system does not exist. Do not forget that in enterprises where the system has long been introduced, it will become obsolete sooner or later. Therefore, it must be periodically reviewed and adjusted depending on modern realities. Never forget to evaluate the real financial capabilities of the company, so that the compensation package does not remain only on paper.